Emerging Europe property revival

June 12, 2009

People packing their bags and flying out to St Petersburg, Warsaw, and Prague this summer may not just be seeking an exotic vacation spot.

International property investors are inching back to emerging Europe, lured by prospects of higher returns in markets such as Poland, whose economy has held up relatively well in a global downturn, and Russia, which is bolstered by rising crude oil prices.

After posting strong growth for over 5 years, commercial real estate investments in emerging Europe had been a washout after Lehman Brothers’ collapse in Sept ‘08, with first quarter sales hitting a record low.

As our Moscow-based property reporter Yuliya Komleva and I wrote , major property fund managers such as Germany’s DekaBank, UK’s Aberdeen, and Hines from the United States have again looking for big buys in the region, although Hungary, Ukraine and the Baltics remain largely no-go zones.

Aberdeen Property Investors’ managing director for Russia, Charles Voss, even compared Russian cities favourably against London, where the once-booming UK financial services industry has been weakened by the global financial crisis.

“They don’t anticipate all those jobs to come back immediately so the demand for office space will be weak (in the UK). Even though they are starting to get to the bottom, the growth curve in terms of additional value can be less than what can be in found Russia,” says Voss, who sits in Russia’s cultural and historical capital of St Petersburg.

With property prices diving and driving up yields in London however, investors are looking to squeeze higher returns in emerging Europe, says Jones Lang LaSalle (JLL) head of CEE Capital Markets & Investment Tomasz Trzoslo.

(This JLL graphic illustrates European office yield movement in the past year)

“If you can buy in London for 6-7 percent, why buy in Central Europe? Central Europe needs to trade at a yield premium—my guess about 150-200 basis points,” Warsaw-based Trzoslo argues.

6 comments

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Investing in the new Eu countries can be quite interesting, especially Poland which has a fast growing economy and gdp. Property still is relatively cheap and demand for office buildings and shopping malls is sharply rising.

If you are going to invest in property abroad, then good advice is to:

a) use the assistance of a UK company familiar with the country, to assist you.

b) choose a country whose language you know

c) do LOTS of research on the market by yourself before you visit the area.

Relatively cheap in poland? LOL. Do you know how much office space is available on the market? Signs up “for rent” all over the place + buildings being finished that started when there was a building frenzy 2 years ago will make sure that the market is going to be hard. Lets see how many of the developers roll over.

Consider exhausting all avenues of investment in your own country before investing overseas.

Remember agents make money from sourcing ‘investment’ properties for you and many will tell you anything to secure a sale.

Double the normal amount of due diligence before investing overseas.

In addition to good advices from Jane Dunlop I would advice everybody to investigate carefully investment vehicle you are planning to inverst in. What have they done?

Roughly speaking there are two kind of investors at Russian real estate markets: 1) Those who are investing, and 2) those who keep saying that they will invest but in fact does not manage to do so.

In Russia you loose face rather fast in case of the latter. Once you loose it in Russia you might as well close the shop.

Posted by GetReal | Report as abusive

Hello,

We often forget about Slovenia, a safe country to invest (and such a beautiful one!). Futhermore properties are still very affordable and the environment great.
The location makes Slovenia a great destination for Saling, skiing, mountain biking, hiking and also for the great quality of the food.

For example, here is a house in a vineyard at the top of a hill in Lendavaske gorice (east of Slovenia): lendava(.)webs(.)com.